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Euro Crises and Euro Scams: Trade not Debt and Deficits Tell the Tale

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  • John Weeks

    () (SOAS, University of London)

Abstract

The euro crisis was typically presented as excessive fiscal deficits leading to the accumulation of unsustainable public debts. This diagnosis applied most notably in Greece and Italy, but also Portugal and Spain. Implicit in much of the analysis, and occasionally explicit, was the suggestion that these countries spent beyond their means and abandoned a commitment to international competitiveness. This article demonstrates that the German export-led growth strategy generated large trade and current account deficits throughout the euro zone in the 2000s. When the global financial crisis struck the continent in 2008 these deficits proved unsustainable. With the exception of Greece neither public debts nor fiscal deficits represented a major problem among euro zone countries prior to 2008. The analysis leads to measures that could have avoid the crisis of sovereign debt entirely, as well as corrected the unsustainable trade balances in the euro zone. These policies were not seriously considered, with the result that the future of the common currency was in doubt.

Suggested Citation

  • John Weeks, 2013. "Euro Crises and Euro Scams: Trade not Debt and Deficits Tell the Tale," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(69), pages 7-36, December.
  • Handle: RePEc:bcr:ensayo:v:1:y:2013:i:69:p:7-36
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    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/69_Weeks.pdf
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    References listed on IDEAS

    as
    1. Constant, Amelie F. & Massey, Douglas S., 2003. "Labor Market Segmentation and the Earnings of German Guestworkers," IZA Discussion Papers 774, Institute for the Study of Labor (IZA).
    2. Dan Schendel & Derek Channon & Ari Ginsberg & N. Venkatraman, 1992. "Abstract," Strategic Management Journal, Wiley Blackwell, vol. 13(S1), pages 37-53, June.
    3. Shaikh, Anwar, 1974. "Laws of Production and Laws of Algebra: The Humbug Production Function," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 115-120, February.
    4. Peter Brandner & Leopold Diebalek & Helene Schuberth, 1998. "Structural Budget Deficits and Sustainability of Fiscal Positions in the European Union," Working Papers 26, Oesterreichische Nationalbank (Austrian Central Bank).
    5. Xavier Debrun & Radhicka Kapoor, 2010. "Fiscal Policy and Macroeconomic Stability; Automatic Stabilizers Work, Always and Everywhere," IMF Working Papers 10/111, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    common currency; crisis; Euro area; fiscal balance; public debt; sustainability; trade balance;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G01 - Financial Economics - - General - - - Financial Crises

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